Nafta Trade-Off: Some Jobs Lost, Others Gained

By JAMES STERNGOLD

Published: October 9, 1995

Correction Appended

LOS ANGELES, Oct. 6—
Twenty-one months after the North American Free Trade Agreement took effect with ebullient projections that it would create hundreds of thousands of jobs, the experience of the Key Tronic Corporation, a big manufacturer of computer keyboards in Spokane, Wash., is a reason some critics argue the trade pact has cost the United States dearly.

Key Tronic, which faces stiff competition from Japanese manufacturers, has laid off 277 workers and moved their jobs to a plant in Ciudad Juarez, Mexico, where wages are a fourth of those in Washington. In fact, tens of thousands of factory jobs in this country have been lost since the agreement took effect for precisely the same reason.

But as it happens, Key Tronic is also an example of the benefits created by the trade pact. Ronald F. Klawitter, the company's chief financial officer, said that Key Tronic's sales had jumped because of the lower costs of manufacturing in Mexico, which enabled the company to lower prices and win new orders. And since many of the components used in the keyboards assembled in Ciudad Juarez come from plants near Spokane, overall employment in the area has actually increased to keep up with the demand.

"Some of the business we've picked up we wouldn't have gotten if we didn't have the Mexican plant," said Mr. Klawitter, who added that without Nafta the company might have had to consider manufacturing in low-wage Asian countries.

Mexico's President, Ernesto Zedillo, is coming to Washington on Tuesday, and Nafta will weigh heavily on both his talks with President Clinton, and how critics will assess the relationship between the countries. When the pact was passed by Congress in November 1993, Mr. Clinton called the agreement "a defining moment for our nation" and his economists said it would create 170,000 jobs in the first year. Clearly that has not been the case, because of the deep Mexican recession. But many businessmen and economists say jobs were the wrong way to measure Nafta's effects; as in the case of Key Tronic and many other companies, Nafta is all about corporate efficiency.

Even within Mexico there is some disappointment with Nafta because of its perceived failure to create jobs and the fact that last December's peso crisis created a deep recession that for the time being has outweighed any potential benefits.

On the political level, much of the debate in the United States has involved hyperbole and oversimplification. Conservatives like Pat Buchanan, a Republican Presidential hopeful, and labor unions have found common purpose in calling for Nafta's repeal. Backers say it is just a matter of time before benefits begin to outweigh short-term job losses.

Perhaps more important, the peso crisis, which caused the Mexican currency to plummet by nearly 50 percent and sent the economy into a paralyzing recession, has made it even more difficult to assess just how the lowering of tariffs and other barriers under Nafta has affected American companies and workers. Clearly, economists say, some job losses in this country are a result of the steep drop in demand in Mexico for goods of all kinds, not Nafta.

But as the Key Tronic example demonstrates, Nafta has not been a zero-sum game, where one country's gains translate into the other country's losses. The Nafta experience has borne out the fact that the effects of trade involve a powerful dynamic in which many forces push and pull to reshape the economic structure of both countries, and that those changes are not without much pain.

For instance, one of the big pluses for the Chrysler Corporation is not just the potential increase in the sale of its cars and trucks in Mexico -- sales are down considerably this year because of the recession, after a huge jump in sales last year -- but the fact that it can now sharply increase the efficiency of its Mexican plants.

James D. Donlon, a Chrysler vice president, said one Mexican plant previously produced several models in relatively small numbers, largely for sale in what was then a protected Mexican market that was highly resistant to imports from the United States. Now, with many of those barriers being phased out, that plant will produce just one model, in far greater numbers and thus at less cost per vehicle, in a few years. And those autos will be sold both domestically and in the United States. In addition, Chrysler will be able to export autos from the United States to Mexico, making a wider range of vehicles available to Mexican consumers.

"Our ability to integrate our marketing and our production represents a total operation well beyond what the two could have been separately," Mr. Donlon said. "But we won't see the full benefit for two or three years."

Then there are workers like Manuel Lepe. Mr. Lepe, a mechanic who works on apparel-cutting machines, lost his job last year at a Los Angeles factory after 20 years with the company.

The blow was softened by the fact that the company helped Mr. Lepe find a new job with another apparel contractor. But there was one problem: his new job came with a pay cut to $6.25 an hour from $8.50.

And consider what has happened to California farmers. Exports to Mexico of many agricultural products, like lettuce and peaches, have risen since Nafta lowered tariffs on many of those commodities.

"It turned out that it was cheaper to produce lettuce here using Mexican labor than in Mexico," said Philip L. Martin, an agricultural economist at the University of California at Davis.

Correction: October 11, 1995, Wednesday A chart on Monday with an article about the impact of the North American Free Trade Agreement incorrectly described the data shown. The graph showed the number of American workers who have qualified for a Federal job retraining program intended to cushion the effects of Nafta, not the number of jobs lost as a result of the accord.